06Feb15

Isolated Greece wants no more bailout money with strings

Greece's new leftist-led government, isolated in the euro zone and under
pressure from the European Central Bank, said on Friday it wanted no more
bailout money with strings attached from the European Union and International
Monetary Fund.

Instead, a government official said, it wanted authority from the euro zone to
issue more short-term debt, and to receive profits that the European Central
Bank and other central banks have gained from holding Greek bonds.

The official said Greece was in effect asking for a "bridge agreement" to keep
state finances running until Athens can present a new debt and reform
programme, "not a new bailout, with terms, inspection visits, etc.".

"It is ... necessary that Greece is given the possibility to issue T-bills, beyond the
(current) 15 billion euro threshold, in order to cover any extra needs," said the
official, asking not be named.

Finance Minister Yanis Varoufakis returned empty-handed from a tour of
European capitals in which even left-leaning governments in France and Italy
insisted Greece must stick to commitments made to the European Union and IMF
and rejected any debt write-off.

The Athens official made clear that the new government, which came to power
on a wave of anti-austerity anger in elections last month, now wanted to forego
remaining bailout money that had austerity strings attached:

"Greece is not asking for the remaining tranches of the current bailout
programme - except the 1.9 billion euros that the ECB and the EU member
states' central banks must return."

Euro zone finance ministers will discuss how to proceed with financial support for
Athens at a special session next Wednesday ahead of the first summit of EU
leaders with the new Greek prime minister, Alexis Tsipras, the following day.

However, the chairman of the finance ministers said the following meeting of the
Eurogroup on Feb. 16 would be Greece's last chance to apply for a bailout
extension because some euro zone countries would need to consult their
parliaments.

"Time will become very short if they (Greece) don't ask for an extension (by
then)," said Jeroen Dijsselbloem.

The current bailout for Greece expires on Feb 28. Without it the country will not
get financing or debt relief from its lenders and has little hope of financing itself
in the markets.

No Progress so Far

Participants said no progress was made at a preparatory meeting of senior
finance officials in Brussels on Thursday because Greece and its euro zone
partners were so far apart.

"It was Greece against all others, basically one versus 18," one official said.

Athens' partners broadly lined up in support of a hardline German document
rejecting any roll-back of reforms or commitments made by previous Greek
governments.

Tsipras and his ministers promised in their first days in office to raise the
minimum wage, re-hire some sacked government employees and stop some
privatisations.

This clashed with conditions set by the IMF and euro zone countries, which have
lent Athens a total of 240 billion euros ($270 billion).

The ECB raised the stakes this week by deciding to bar Greek banks from using
Greek government bonds as collateral to borrow from the central bank as long as
there is no prospect of an agreed bailout programme.

That makes lenders dependent on more costly emergency liquidity from the
Greek central bank, which the ECB can stop at any time.

Greek bank shares fell further on Friday at the end of a week of wild swings, as
brokers cut their forecasts on worries over dwindling deposits and brinkmanship
between Athens and its creditors.

Portugal, which emerged from its own EU/IMF bailout last year, joined the
chorus of countries insisting that Greece must stick to the austerity medicine as
Lisbon had done, pay its debts, and respect past agreements with EU partners.

Not the Easiest Route

Economy Minister Antonio Pires de Lima told the Reuters Euro Zone Summit that
Lisbon had chosen a route "which was not the easiest one" to recover credibility
and return to growth, and "that is also our attitude to the situation in other
countries".

Varoufakis was expecting tough treatment from his partners at next Wednesday's
meeting.

"It's expected, obviously there is pressure as part of a dynamic situation, we are
in a negotiation. But we believe that we will reach a mutually beneficial solution
soon," said a separate official from the prime minister's office.

Before then, Tsipras will deliver a policy speech to parliament on Sunday and
seek a vote of confidence on Tuesday, which he is likely to win easily.

Euro zone officials say Greece is free to design its own reforms in line with
Syriza's campaign promises, as long as the result is in line with commitments to
stronger public finances, debt repayment and reforms.

Time to reach a deal is short. Some analysts say Greece could run out of cash as
early as March without further euro zone help.

"Greece's financing needs over the next five years may amount to 30-35 billion
euros," Italy's Unicredit bank said in a research note.

"However, if we set the primary surplus at 1-1.5 percent of GDP and assume that
privatisations will stop, as requested by the Greek government, overall financing
needs would rise to 60 billion euros," Unicredit said.

Both Goldman Sachs and Deutsche Bank said their base case was that Greece
would remain in the euro zone, but a rise in deposit outflows had raised the risk
of a crisis.

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